How to Measure Customer Loyalty
Understanding the value of customer loyalty is straightforward enough. Most obviously, loyal customers are more likely to become natural promoters for the brand and, in turn, help the brand attract new prospects. Loyal customers also have a positive impact on customer retention rate, which is in itself the key to long-term business profitability. But what is the best way to measure customer loyalty?
Traditional customer service surveys remain an option for now, but they are gradually becoming outmoded. More and more, the world’s leading brands are using Net Promoter Score (NPS) to measure customer satisfaction. NPS is a single-question survey that simply asks customers this: “On a scale of 1–10, how likely is it that you would recommend brand X to friends, family members, or colleagues?” The customers who score 9 or 10 are termed promoters, 7 or 8 are passives, and 0 to 6 are detractors. NPS is calculated by subtracting the percentage of customers who are detractors from the percentage who are promoters.
In the current phase of CRM—one driven by data capture, meaningful relationship insight, and proactive intelligence—it’s easy to see why NPS is increasing in popularity. It can be measured as regularly as is necessary (quite often daily), enabling brands to understand in real time how customer satisfaction levels influence buying behavior. With the ability to identify promoters, brands can spend more time on pursuing targeted, timely, and ultimately more successful cross-selling and upselling opportunities.
Build It into CRM
On its own, NPS is a useful indicator of customer satisfaction. But it’s even more valuable when it is tracked and analyzed in conjunction with other customer experience metrics, such as retention rate, churn rate, and repeat purchase rate. It’s important to remember that while NPS can be a vital part of customer relationship management, it is still only an indication of whether or not brands are heading in the right direction.
Why? Well, let’s use a simple analogy. Say you’re off to the tropics for a summer beach holiday and check the weather online. It says it’s 85 degrees Fahrenheit. You rejoice in anticipation of long lazy days in the sun and race off to the airport. Unfortunately, you forgot to take into account cloud cover, wind speed, precipitation, humidity, and so on, and spend most of the vacation inside playing bingo while a quasi-hurricane rages outside.
Many variables must be considered when forecasting the weather, and something similar can be said for forecasting changes in the health of customer relationships. For brands to establish a transparent and continuous view of customer relationship health, they must consolidate various customer experience metrics within a single CRM system. They must also review the customer sentiment data that is constantly collected from interactions across communication such as email, mobile devices, and social media. Taking this approach, brands will have more success pinpointing specific customer problems—and opportunities—that may otherwise have fallen under the radar.
Act on Insights
Determining NPS is a simple, valuable process, but putting it to good use isn’t always so easy. Knowing how to engage with promoters, passives, and detractors will require a targeted action plan that addresses the unique characteristics of each type of customer. Long-term business success is just as much about customer retention as it is pure customer acquisition. Where are the opportunities to cross-sell and upsell to promoters? Why aren’t passives engaging with our communications? How can we win back detractors?
These aren’t questions brands can expect marketing and sales teams to answer on their own. Rather, key decisions makers must acknowledge the need for sophisticated CRM technology that can collect and analyse NPS and other key customer relationship data and, furthermore, enable users to turn this insight into action. Only then can brands act to maintain the loyalty of existing customers, and take advantage of any opportunities to win over new ones.
In his role as international managing director of Bullhorn, Peter Linas oversees international operations across Europe, the Middle East and Africa (EMEA) and Asia Pacific and Japan (APAC). Linas joined Bullhorn in 2009 and was responsible for its highly successful U.K. launch. Linas has expanded Bullhorn’s reach into EMEA and APAC and achieved a user base of more than 10,000 international users. Prior to taking on the launch of Bullhorn in the U.K., Linas spent 20 years working in the recruitment industry and held a number of senior director roles before moving into the technology space.